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Health Special Session 2015-16

June 24, 2015

Governor Brown, after more than a year of effort, signed a new Managed Care Organization (MCO) fix package into law on March 1, 2016.

MCO Fix. CSAC supported the main piece of the package—the MCO fix as outlined in SBX2 2 (Hernandez-Bonta). The tiered tax proposal is the product of months of negotiation between the Brown Administration, health plans—including local and county-run health plans—and the Legislature. It restructures the MCO tax in a way that meets federal standards. It raises between $1.3 and $1.7 billion annually, and will be in effect for three years, until 2019.

SBX2 2 requires all health plans to contribute funds that the state would use to draw down federal funding to create at least $1.3 billion for Medi-Cal related services. Federal law requires the participation of all plans, which is also the reason the current MCO tax had to be scrapped, since it applied only to plans offering Medi-Cal services. In return for their participation, private health plans will receive discounts on their Gross Premium and Corporate Taxes. All plans, including local plans, are eligible for supplemental payments from the federal funds the state draws down with MCO dollars.

The new MCO structure has three tiers based on enrollment size in the base year (October 1, 2014 through September 30, 2015) and the amount of tax a plan will pay is pegged to the enrollment tiers outlined in the bill. This means that the amount that each individual plan pays will remain static for the three-year duration of the tax. This method provides certainty for both plans (costs) and the state (revenues). The bill also establishes the Health and Human Services Fund in the State Treasury and requires all MCO revenues to be deposited into that fund, and authorizes continuous appropriations from that fund for Medi-Cal related services.

Funding for Developmental Services. The second piece of the MCO fix package is ABX2 1 (Thurmond-Beall), which provides a $300 million investment in the community-based developmental services system. It also forgives retroactive payments for rural and critical access skilled nursing facilities that are associated with general acute care hospitals.

Developmental services providers will see a 5 percent increase in rates under ABX2 1 and the state will complete a rate study to further address historically low reimbursement rates for these providers. CSAC has not taken a position on ABX2 1, since the developmental services system is operated by the state, but the Association has strongly supported relieving rural and critical access skilled nursing facilities of a budget cut that would have required them to repay payments made before 2009. Requiring these small facilities to make those payments would have jeopardized their continued operation in areas where this type of care is already rare.

Budget Piece. The third part of the package is outside of the Special Extraordinary Session on Health Care, and is instead part of the budget: AB 133. It contains four provisions requested by Republican members of the Legislature as part of the MCO fix deal. AB 133 appropriates nearly $520 million for the following:

$173 million for specified local Traffic Congestion Relief projects ($148 million); trade corridor improvements ($11 million); Transit and Intercity Rail Capital Program ($9 million); and the State Highway Operations and Protection Program ($5 million).
$105 million to support fire recovery and debris removal for Lake and Calaveras Counties.
$240 million to prefund health and dental benefit liabilities for state retirees.
$1.85 million to the University of California for the San Joaquin Valley Program in Medical Education (SJV PRIME) program, which provides training to medical students within San Joaquin valley clinics.

Each of these provisions was included in the Governor’s January Budget proposal, and is now law.

County Impacts. Counties were key stakeholders in the MCO fix conversation and are affected in several key ways.

On a statewide level, the existing MCO tax provides implementation funding for the Coordinated Care Initiative (CCI) pilot program in seven counties. Counties strongly support the CCI to ensure better care coordination for high-risk, high-cost residents who are dually eligible for both Medicare and Medicaid. The CCI is also tied in an important way to the counties’ role in the In-Home Supportive Services (IHSS) program, as the continuation of the CCI is required to preserve the county IHSS Maintenance of Effort (MOE) under 1991 Realignment. The IHSS MOE sets county IHSS costs at 2012 levels with a 3.5 percent annual inflator. Further, if the CCI succeeds in the initial seven counties, the eventual plan is to transition collective bargaining for IHSS workers from each county to the state—however there are no set timelines for this phase to occur. Without current MCO funding, the CCI is in danger of collapsing, which would then jeopardize the county IHSS MOE and possible transfer of collective bargaining.

The current MCO tax also provides funding for other Medi-Cal services throughout the state. The loss of this supplemental funding could have resulted in statewide cuts to the Medi-Cal system or county programs and services.

On a county-by-county basis, the MCO tax structure in SBX2 2 will impact counties that operate local health plans, since county health plans will not benefit from changes in the Corporate or Gross Premium Tax structures offered to private health plans under SBX2 2. Further, counties that provide local health plan coverage to county employees will experience new fiscal impacts under SBX2 2. The net impact of SBX2 2 on each county will vary, but it is clear that counties will contribute more under the new MCO structure.

CSAC Support for the MCO Fix. Preserving MCO tax funding for Medi-Cal services, including the CCI, is a CSAC priority for 2016. CSAC supported SBX2 2 as a reasonable MCO fix that meets federal requirements and preserves critical Medi-Cal funding and the CCI, at least for this year.

CSAC did not take a position on either ABX2 1 or AB 133.

Procedure. Both houses of the Legislature passed all three bills on Monday, February 29, and Governor Brown signed them into law on March 1.

The Second Extraordinary Session on Health Care remains open in the Senate. The Assembly adjourned the special session today after passing a raft of tobacco control measures.

The single other piece of legislation passed in special session last fall, ABX2 15 (Eggman) or the “End of Life Option Act,” was signed by the Governor in October. However, it cannot go into effect until 90 days after the special session adjourns in both houses.